[W]e expect fixed income markets to remain volatile, but we do not believe that we will see a precipitous drop in prices and overly dramatic advance in yields. For one reason, inflation still remains tame, which means the Fed is under less pressure to move quickly.

Thanks to a strong US dollar, which lowers the cost of foreign imports, US import prices were up only 0.2% in June on a year-over-year basis. Stripping out oil prices (which have been rising recently ), overall import prices were actually down 0.5% over the last year. Additionally, last week’s data showed that June’s Producer Price Index (PPI) was reasonably well contained. The headline number did show a spike, but the core number (which excludes volatile energy and food prices) showed just a 1.7% increase, close to the lowest level seen since early 2011.

Although several members of the Federal Reserve have clearly indicated that the central bank’s longstanding easing bias presents some risks, without inflationary pressure the Fed is unlikely to quickly shift away from monetary accommodation .